12 Nov 2014

Opinion: Will the new Scottish Stamp Duty be bad for business?

Opinion: Will the new Scottish Stamp Duty be bad for business?

The passing of the Revenue Scotland and Tax Powers Bill by the Scottish Parliament sees Scotland establish its first tax collection system in three centuries.

David Orr, Associate, analysis the passing of the Revenue and Tax Powers Bill by the Scottish Parliament.

The passing of the Revenue Scotland and Tax Powers Bill by the Scottish Parliament sees Scotland establish its first tax collection system in three centuries. The effect of the Bill is to replace the existing Stamp Duty Land Tax (SDLT), as of 1st April 2015, with a new progressive tax named Land and Building Transaction Tax (LBTT) which aims to make the amount of tax paid correlative to the purchase price of the property. While there has been much commentary on the effect LBTT will have on residential purchases, the impact on the commercial property market is arguably greater; The Scottish Property Federation have indeed expressed a fear that the new tax will make purchasing in Scotland more expensive than in the rest of the UK. 

Current SDLT rates and thresholds for non-residential purchases:

  • Nil rate up to £150,00
  • Above £150,000 to £250,00 – 1%
  • Above £250,000 to £500,000 – 3%
  • Above £500,000 – 4%

LBTT rates and thresholds for non-residential purchases (applicable from 1st April 2015):

  • Nil rate up to £150,000 
  • Above £150,000 to £350,000 – 3%
  • Above £350,000 – 4.5%

Example of LBTT on a commercial property bought at £400,000:

  • 0% for the first £150,00, then
  • 3% for the next £200,000, and
  • 4.5% for the remaining £50,000
  • So £8,250 is due in LBTT

As shown in the below table comparing the current SDLT payable to the sum due under LBTT from 1st April, purchasers of low to middle priced commercial properties will experience a reasonably significant benefit. This is perhaps reflective of the Scottish Government’s manifesto in relation to assisting small businesses.

The picture for high end transactions is not so rosy however, and purchasers involved in such transaction are set to face a significant tax increase. The fear is that big businesses will therefore opt to base themselves south of the border to avoid paying the increased level of tax. As is the case with residential properties, it is widely felt that Aberdeen and Edinburgh will be hit the hardest given that the average price of property is significantly higher than in the rest of Scotland.

Given that LBTT is due to take effect from 1st April there is potential for those purchasing below the £2 million mark to delay settlement until after the effective date in order to benefit from the reduced tax liability. The converse is also likely to arise, where high value purchases are pushed through prior to the said date in order to avoid paying the increased tax due under LBTT compared to SDLT.

 
Purchase Price
SDLT currently payable
LBTT payable (with effect from 1st April 2015
£220k
£2,200
£2,100
£260k
£7,800
£3,300
£325k
£9,750
£5,250
£400k
£12,000
£8,250
£535k
£21,400
£14,325
£800k
£32,000
£26,250
£1 million
£40,000
£35,250
£1.5 million
£60,000
£57,750
£2 million
£80,000
£80,250
£3 million
£120,000
£125,250
£5 million
£200,000
£215,250
£10 million
£400,000
£440,250

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